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Item 7. Management’s Discussion and Analysis

2023-11-28 compared with 2022-11-14 · 59 added, 40 removed, 152 unchanged (39% of the section changed)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS

OF OPERATIONS.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The following discussion and analysis of our financial condition and results of operations should be read together with our consolidated financial statements and related notes appearing elsewhere in this Annual Report on Form 10-K.

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RESULTS OF OPERATIONS FOR THE YEARS ENDED AUGUST 31, 2023 AND 2022

Total revenue for the year ended August 31, 2022 decreased by approximately 3.6% to $4,023,910 compared to the revenue of $4,172,473 for the year ended August 31, 2021;

however, adjusted for impacts of foreign currency translation Play MPE® revenue increased 1.1% year over year.

The negative impact of the foreign currency translation can be attributed to the decline in the value of the Euro and the Australian dollar relative to the US dollar.

Play MPE® revenue earned in North America and Africa during the year ended August 31, 2022, has grown by 3.4% and 208.6% year over year, respectively.

Notwithstanding the negative impact of foreign currency translation, Play MPE® revenue earned in the European segment has also grown by 3.6% year over year.

Total revenue for the year ended August 31, 2023 increased by 0.3% to $4,034,384 compared to the revenue of $4,023,910 for the year ended August 31, 2022.

Adjusted for impacts of foreign currency translation, Play MPE® revenue increased 1.9% year over year.

The negative impact of foreign currency translation is attributed to the decline in the value of the Euro and the Australian dollar relative to the US dollar.

The Company experienced a 6.1% growth in revenue in the second half of the year recovering from a slow start to the year.

This growth came as the result expanded distribution list options, increased investments in digital marketing that commenced at the beginning of our third quarter, in-platform list selection improvements that took effect in our fourth quarter and improvements in foreign exchange rates which eliminated the negative impact to revenue experienced in the first half of the year.

The Company's revenues are denominated predominantly in US Dollars, Euros and Australian Dollars.

% of Total Revenue

Currency 2023 2022

US Dollar 46.9% 45.6%

Euro 45.2% 45.6%

Australian Dollar 3.9% 4.3%

Gross margin for the year ended August 31, 2022 was 83.7% of revenue, which represents a decrease of 6.9% from the year ended August 31, 2021.

Other 4.0% 4.5%

Gross margin for the year ended August 31, 2023 was 87.2% of revenue, which represents an increase of 3.5% from the year ended August 31, 2022.

The Company's cost of revenue consists of data hosting and processing charges, third party transaction related costs, and engineering, technical and customer support costs.

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Our full-service revenue is derived from customers who are fully serviced by our internal staff, who prepare and publish releases on their behalf.

During the year ended August 31, 2022, our gross margin decreased over the comparative year predominately due to increase in costs associated with the hosting services and increased staffing in technical and customer support departments in order to increase optimization of the service and reduce lag time in remote locations.

During the year ended August 31, 2023, our gross margin increased over the comparative year predominately due to a decrease in costs associated with the hosting services and a decrease of staffing in technical and customer support departments.

Operating Expenses

Operating costs during the year ended August 31, 2023 decreased by 0.5% to $3,218,092 (2022 - $3,233,860).

The decrease in costs was primarily the result of the following three factors:

An increase of $271,342 or 9.9% in wages and benefits due to additional staffing that was brought on board to support expanded development of the Play MPE® platform and additional operational staff to support expanded technical support and distribution list development.

The additional staff is focused on items designed to accelerate revenue growth of Play MPE® and expand the addressable market.

An increase of $96,842 or 187.2% in non-cash stock-based compensation recorded due to share-based awards granted during the year ended August 31, 2022.

These increases were offset by $626,778 in capitalized wages and benefits paid to engineering and product development employees who worked on development of the new products and enhancements to the Play MPE® platform.

The capitalization and inclusion of these investments in assets is done based on an assessment of their positive incremental value.

Additionally, a decrease in value of the Canadian dollar relative to the US dollar added to the overall decrease in operating expenses.

The decrease in operating costs was primarily the result of the following:

Favorable foreign exchange rates reduced the overall operating costs by approximately 3.7%.

The majority of our operating costs are denominated in Canadian dollars.

As the US dollar strengthened on average relative to the Canadian dollar, our operating costs as expressed in US dollars declined.

While total salaries and wages remained relatively consistent with the prior year, we increased the amount capitalized to capital software assets and software under development intangible asset resulting in a decrease to total operating expenses of approximately 1.6%.

With the growing capitalization of salaries and wages, amortization expense grew overall expenditures by 3.0%.

One-time professional fees associated with resolving outstanding litigation grew overall expenditures by 1.6%.

For ease of reference the following table has been prepared to present operating results had the Company not capitalized software for fiscal years 2023 and 2022.

Net Income for the Year $ 335,098 $ 149,047

Capitalized Software Development (682,617 ) (626,778 )

Adjustment to Amortization of Capitalized Software 166,235 65,937

Adjusted net income (loss) for the year $ (181,284 ) $ (411,794 )

General and Administrative Expenses

2023 2022 $ Change % Change

Wages and benefits $ 384,213 $ 455,343 (71,130 ) (15.6%)

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Shareholder relations 75,670 77,416 (1,746 ) (2.3%)

Rent 49,231 59,631 (10,400 ) (17.4%)

Foreign exchange loss (118,228 ) 58,299 (176,527 ) (302.8%)

Telecommunications 10,882 8,391 2,491 29.7%

Bad debt 3,129 44,304 (41,175 ) (92.9%)

Other 32,305 29,295 3,010 10.3%

Total general and administrative expenses $ 769,613 $ 980,381 (210,768 ) (21.5%)

The increase in salaries and wages can be explained by increased non-cash stock-based compensation due to additional share-based awards granted during the year ended August 31, 2022 and one-time staff recruitment fees.

Increase in bad debt year over year was due to the Company using a more stringent policy to establish an allowance for overdue receivables.

The decrease in professional fees was due to the timing of litigation proceedings in the comparative year ended August 31, 2021.

The decrease in salaries and wages can be explained by a temporary decrease in full time equivalent staffing for August 31, 2023 and one-time staff recruitment fees.

Professional fees were temporarily increased due to one-time litigation expenses, which were subsequently resolved through a favorable judgment in the Company's favour.

The Company was awarded costs and has only partially recognized the collection of those costs.

Sales and Marketing Expenses

2023 2022 $ Change % Change

Wages and benefits $ 724,297 $ 825,551 (101,254 ) (12.3%)

Advertising and marketing 97,129 121,981 (24,852 ) (20.4%)

Rent 41,755 57,814 (16,059 ) (27.8%)

Telecommunications 9,498 5,853 3,645 62.3%

Total sales and marketing expenses $ 872,679 $ 1,011,199 (138,520 ) (13.7%)

The decrease in wages and benefits is the result of restructuring costs in the prior year and adjustments in staff allocation.

The increase in advertising and marketing expenses is related to increased sponsorship, advertising, and attendance at industry events in the fiscal year 2022 compared to the fiscal 2021, where COVID-19 restrictions severely impacted public activities and travel.

The decrease in wages and benefits is the result of a temporary decrease in full time equivalent staffing for August 31, 2023.

The decrease in advertising and marketing expenses is related to timing of sponsorship, advertising, and attendance at industry events in the fiscal year 2023.

Product Development Expenses

Product development expenses 2023 2022 $ Change % Change

Wages and benefits $ 1,045,492 $ 846,737 198,755 23.5%

Software services 89,131 81,615 7,516 9.2%

Rent 79,690 84,991 (5,301 ) (6.2%)

Telecommunications 123,132 83,592 39,540 47.3%

Other - 2,683 (2,683 ) 100.0%

Product development expenses $ 1,337,445 $ 1,099,618 237,827 21.6%

During the year ended August 31, 2022, the Company increased development staffing to accelerate new additions to the product roadmap designed to increase the addressable market and facilitate faster market acquisition.

The decrease in wages and benefits reflects the capitalization of a portion of these costs.

During the year ended August 31, 2022, $626,778 in wages and benefits paid to engineering and product development staff were capitalized to software under development intangible assets and $269,777 of the capitalized wages and benefits was subsequently reclassified to computer software fixed assets as the products were completed.

The rise in wages and benefits can be attributed to the recruitment of additional development staff, aimed at accelerating the implementation of new additions to the product roadmap.

Additionally, for the year ended August 31, 2023, the Company increased the amount of capitalized product development wages, reflecting a continued significant investment in product development to expand its addressable market.

The increase in telecommunications costs is directly associated with the expansion of product development activities.

Depreciation and Amortization

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Additionally, the Company terminated its lease agreement for the office space on January 31, 2022.

Upon termination the Company disposed of leasehold fixtures and fittings and recorded a gain on lease termination of $11,018.

Upon termination the Company disposed of leasehold fixtures and fittings and recorded a gain on lease termination of $11,018 for the year ended August 31, 2022.

For the year ended August 31, 2023, we reported a net income of $335,098 (2022 - $149,074).

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The following is a reconciliation of net income from operations to Adjusted EBITDA:

Net income $ 335,098 $ 149,074

Current income tax 2,576 4,348

Stock-based compensation 147,932 148,576

Depreciation, amortization and deferred leasehold inducements

Depreciation and amortization 238,355 142,662

Interest income (36,498 ) (9,153 )

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As of August 31, 2023, we held $2,002,769 (2022 - $2,095,928) in cash and cash equivalents.

Our cash equivalents consisted of one-year Guaranteed Investment Certificates held through a major Canadian financial institution and had reached their maturity.

The Company's cash equivalents consist of investments in mutual funds with a major Canadian financial institution that earn interest at variable interest rates ranging from 4.55% - 4.90%.

On August 31, 2023, we had working capital of $2,185,960 compared to $2,268,778 as at August 31, 2022.

The decrease in our working capital was primarily due to the decrease in cash and cash equivalents as a result of timing of customer receipts and trade payments.

The decrease in our working capital was primarily due to operating results.

The following table sets forth a summary of the net cash flow activity for each of the years indicated:

Net cash and cash equivalents provided by (used in)

Net cash and cash equivalents provided by (used in) 2023 2022 $ Change % Change

Operating activities $ 705,634 $ 307,198 398,436 129.7%

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Net cash provided by operating activities during the year ended August 31, 2023 was $705,634 (2022 - $307,198).

The primary reason for the decrease in cash flows from operating activities was the timing of receipts from our customers.

The cash used in operating activities for the year ended August 31, 2023 was due to approximately $2.3 million spent on salaries and wages, $0.2 million in professional expenses, $0.15 million on telephone communications and cloud infrastructure, and approximately $0.1 million spent on research and development.

The net cash used in operating activities for the year ended August 31, 2022 was due to approximately $2.4 million spent on salaries and wages, $0.1 million in professional expenses, $0.1 million on office expenses, $0.1 million on telephone communications and cloud infrastructure, and approximately $0.08 million spent on research and development.

In 2023, the notable rise in net cash provided by operating activities compared to 2022 can be attributed primarily to the increased revenue of the Company and its proactive efforts to optimize and rightsize expenses.

Investing Activities

Net cash used in investing activities for the year ended August 31, 2022 was $692,846, compared to cash provided by investing activities of $590,885 for the year ended August 31, 2021.

During the fiscal 2021, $805,017 was received on the maturity of our GICs.

During the fiscal year 2022, the contributions made towards investing activities was cash spent on new capital assets and internally developed computer software.

Net cash used in investing activities for the year ended August 31, 2023 was $716,024, compared to cash used by investing activities of $692,846 for the year ended August 31, 2022.

The year-over-year increase was mainly driven by the higher proportion of software development salaries and wages being capitalized this year.

Financing Activities

Net cash used in financing activities during the year ended August 31, 2023 was $21,135 (2022 - $190,676) - this cash was used to repurchase and retire 25,651 shares of common stock (2022 - 143,100 shares of common stock) of the Company under the Normal Course Issuer Bid ("NCIB") and to repurchase stock options.

The decrease in net cash used in financing activities was driven by the lower number of shares repurchased in the year.

CAPITAL RESOURCES

The Company does not have any material commitments for capital expenditures and the Company is able to meet current and expected growth with current capital investments.

The Company does not have any material commitments for capital expenditures and the Company is able to meet current and expected growth with income from operations.

OFF-BALANCE SHEET ARRANGEMENTS

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The Company's revenue is derived from software as a service (SaaS) arrangements.

The Company accounts for revenue in accordance with ASC 606, which the Company adopted on September 1, 2018, using the modified retrospective method.

The Company accounts for revenue in accordance with ASC 606.

The core principle of ASC 606 is to recognize revenue upon the transfer of products or services to customers in an amount that reflects the consideration the Company expects to be entitled to in exchange for those products or services.

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All revenues are recognized on a monthly basis as the services are delivered to customers.

Significant management judgments and estimates must be made in connection with determination of the revenue to be recognized in any accounting period.

If we made different judgments or utilized different estimates for any period material differences in the amount and timing of revenue recognized could result.

Research and Development Expense for Software Products

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Stock-Based Compensation

We recognize the costs of employee services received in share-based payment transactions according to the fair value provisions of the current share-based payment guidance.

We recognize the costs of employee services received in stock-based payment transactions according to the fair value provisions of the current stock-based payment guidance.

The fair value of employee services received in stock-based payment transactions is estimated at the grant date and recognized over the requisite service period.

Determining the appropriate fair value model and calculating the fair value of stock-based awards requires judgment, including estimating stock price volatility, forfeiture rates and expected life.

We selected the Black-Scholes option pricing model as the most appropriate method for determining the estimated fair value of our share-based awards.

The Black-Scholes model requires the use of highly subjective and complex assumptions which determine the fair value of share-based awards, including the option's expected term and the price volatility of the underlying stock.

We selected the Black-Scholes option pricing model as the most appropriate method for determining the estimated fair value of our stock-based awards.

The Black-Scholes model requires the use of highly subjective and complex assumptions which determine the fair value of stock-based awards, including the option's expected term and the price volatility of the underlying stock.

Our current estimate of volatility is based on historical and market-based implied volatilities of our stock price.

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When events or changes in circumstances indicate that the carrying amount of long-lived assets may not be recoverable, we recognize such impairment in the event the carrying amount of such assets exceeds the future undiscounted cash flows attributable to such assets.

Intangible assets that are not subject to amortization are tested for impairment annually and more frequently if events or changes in circumstances indicate that it is more likely than not that the asset is impaired.

We have not recorded any impairment losses to date.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis